Before applying for a reverse mortgage, consumers must fully understand all the costs, terms, and conditions. Reverse mortgages are a family decision. Older homeowners should discuss reverse mortgages with their families or other trusted advisors.
If you’re considering a reverse mortgage, it’s a good idea to sit down with your entire family and talk about what you’re doing and why you’re doing it. As someone who wants to get a reverse mortgage should look at the main requirements and see if you meet them.
This decision can affect the borrower’s family, especially regarding what they might get as an inheritance. Children or other family members who will be involved with the borrower’s estate should also know the loan’s key features. This will help them figure out what will happen when the borrower dies.
Everyone must understand that you are withdrawing the equity in your home, and while your lawyer may inform you that your children can still inherit the property, there is a “catch.”
The Catch
The “catch” is that their heirs or any surviving family members must pay back the amount of equity taken out of the home and any interest charges earned while the borrower was alive and living in the house like with any other mortgage.
In the some case scenarios, if the family wanted to keep the home and not sale they would have to refinance the property. So if the original borrower had a forward, the property would still need to be refinanced.
If there is a forward or reverse mortgage and the borrowers are no longer living in the home, the property must be refinanced. This method transfers financing or takes the property out of reverse. Even if the person inheriting it is qualified for a reverse mortgage, it must be refinanced into their name. The main distinctions are the timelines and fee structure for each type of mortgage.
With this strategy, the borrower’s assets didn’t have to be depleted while alive and would be passed on to heirs as the reverse mortgage covered such costs. It results in a modest impact on the estate while leaving more for the heirs to inherit.
The family should be aware of these components. Families seeking money from their homes may have other options. Instead of a reverse mortgage, they might consider a home equity loan. Individuals must consider their current situation and long-term goals before making any decisions.
The Costs
Prospective borrowers should also be aware of the costs and fees of a reverse mortgage up front. A common complaint about reverse mortgages that many people have made.
If you decide to utilize a reverse mortgage, you’ll need to know all the fees and costs involved. Only after deciding if it’s a good fit for your family.
As with any decision, any family member with a stake in a family member’s finances should “read the fine print”. The same is true for a reverse mortgage.
Understanding the cost involved is critical. Read about items like origination, appraisal, and other fees you’ll have to pay. You’ll also have terms to follow if you get a reverse mortgage. You must pay insurance, taxes, and maintenance to support the reverse mortgage. In some states, borrowers with forward mortgages must still pay property tax, and homeowner insurance and maintain the property.
Setting up a meeting with an Accredited Financial Counselor for your family is an excellent approach to receiving opinions and information. It is not uncommon for all family members to disagree on the best course of action.
Ultimately, it is up to the homeowner and their trusted advisor to weigh all of the ideas and concerns and make a final decision.
SayWhyNot, Inc appreciates the opportunity to assist and advise in a fiduciary capacity. Contact us today to schedule a Zoom meeting with you, your family, and your advisers.